The Big Four Blog

Tiger Woods Dilemma for Accenture – Cloud or Cancer?

2009-12-09T16:45:00.002-05:00

Using celebrities as company advertising fronts has both immense rewards and equally high risk. On the positive side, associating with a well-known, successful and popular personality provides instant brand recognition, enhances the company by association and quite often works off the image already created and crafted by that celebrity. The risk however is that any negative impact to that celebrity creates collateral damage for the company, and a long-term association is difficult to quickly unwind.

With his recent accident in Florida and the ensuing public brouhaha, Tiger Woods has been dominating the internet and tabloids with some less than salubrious news. His image as a clean, conscientious family man has taken a huge beating, and his purported dalliances outside his marriage have completely tarnished his public persona.

This has already lead to collateral damages for his numerous commercial sponsors, including Accenture, Pepsi-Gatorade, Nike, NetJets, Gillette, Golf Digest and Electronic Arts. Most sponsors have stated that they will stick with and stick by Tiger through these trying times. As of today, only Gatorade has dropped Tiger by discontinuing its Gatorade Tiger Focus line of energy drinks, and Gatorade claims that this decision was made months before this recent incident.

Tiger reportedly makes $100 million dollars each year from these sponsorships; and has made over $1 billion over his career-to-date, the highest ever by a single athlete.

We think Tiger Woods poses a dilemma for Accenture.

Accenture has been closely associated with Tiger Woods for several years now, the company advertisements (both on print, TV and the internet) prominently feature Tiger, often facing difficult conditions, but with brimming confidence that he will find a way out, as he has done so many times in real life in golf tournaments. Accenture’s “Go On, Be A Tiger” tag line has been a hit, with its pithy admonition for companies to make calculated investments (with Accenture’s help, of course) and come out winning. There are many other memorable lines, including “Opportunity isn’t always obvious”, and “It’s what you do next which matters”, which have served Accenture well as Tiger has gone on to the highest possible levels in professional golf with amazing talent.

In addition, Tiger is the front man at Accenture Match Play Championships, which he has won several times, and he did launch his 2009 season after returning from reconstructive knee surgery. The association between Accenture and Tiger is quite strong (and likely quite lucrative) for Tiger, but the reverse association is actually more so for Accenture. Note that on its own, Accenture is a strong global brand and very well known in its industry and to corporate clients all over the world.

So Accenture has a lot riding on Tiger maintaining his image. The unintended consequences for the company can be quite high. The swirl of bad news and with more revelations showing up each day is likely causing some concern at Accenture HQ.

That is not to say that it will be devastating, in fact, investors, the ultimate owners of the company don't particularly seem to mind. A Motley Fool survey of investors got Accenture a respectable and solid 4 star as a stock investment, and Goldman Sachs recently upgraded Accenture to buy with a price target of $50.

The key question is whether this is a Cancer or a Cloud.

Is Tiger’s public image permanently damaged, with no chance of recovery? Or is it a passing scandal, which after living out its short life will pass away and out of the public’s very short term memory. Note that in previous scandals with well known athletes (think Michael Jordan, Mike Tyson, Kobe Bryant etc.) though dominated the news at the time did all eventually melt away as the public moved on to the next cheesy news. And these athletes did go on to win public favor and do even bigger things in their careers.

If a Cancer, then Accenture is better off pulling its sponsorship right away. And if a Cloud, its probably better to stay and wait it out till things subside.

Of course, the same decision has to be likely made by each sponsor, and this opens up a fascinating game theory problem. If all sponsors drop at the same time, and it is really a Cloud, regardless it is deemed a Cancer; and Tiger and all sponsors lose. If sponsors continue, they are sending a message that it is a Cloud; and the scandal is a mere distraction.

The problem happens when they don’t act as a pack.

If one sponsor decides it's a Cancer, and other sponsors decide it’s a Cloud, then the former sponsor loses the game as the athlete comes back swinging. Conversely, if one sponsor decides it's a Cloud, and other sponsors decide it’s a Cancer, then the former sponsor has a big public image loss.

The key question is who blinks first?

Of course, with the passage of time, does the decision become easier; and the optionality value dies a little.

Accenture looks to be playing it safe. It’s gently pulled out all its ads with Tiger Woods on the internet, and it appears that all prime time TV ads have been stopped. The www.accenture.com home page, which on December 7th, 2009 had a large graphic of Tiger Woods, has been now replaced with two additional graphics on December 8th, 2009, so that the Tiger Woods graphic now only shows once every three times the home page is retrieved.

Accenture has not yet made a public statement that it is either staying with or trenching Tiger. It is keeping its options open and doesn’t want to the first to blink.

We think however, that Accenture should stop sponsoring Tiger Woods right away. This, in our opinion, is the right moral decision. Accenture is a well-regarded, respected squeaky-clean brand signifying class, ethics and high standards. It is a tough decision to disassociate from an advertising front man, but that front man has not kept his end of the bargain, and has caused injury to his wife and family.

Continuation will send a wrong message to Accenture’s employees and clients that such behavior is not reprehensible since it can be justified to be monetarily beneficial. Accenture may not be unduly hurt financially by this step, and its own future actions rather than its association with Tiger will prove its corporate success.

We would think Accenture alumni will think similarly and will be proud that Accenture chose the right moral decision rather than the right business decision. In this case, we believe Accenture should blink first, regardless of the consequences.

There will be certainly daily, if not hourly developments on this front, and we will continue to blog on this topic. Accenture’s final actions and subsequent events will make for a fascinating case study. If any readers have any insights on this, we welcome your comments.

KPMG Global Business Outlook Validates Current Optimism and Confidence

2009-12-03T15:02:00.000-05:00

KPMG recently released its Global Business Outlook Survey on global manufacturing and services. And it has good news for the world economy and some unexpected surprises.
Overall, the survey indicates that, with manufacturing and service sectors getting more confident, there are robust growth prospects for the world economy over the next 12 months.

In October, there appears to be renewed optimism for 2010, with sentiment being highest in the US and the BRIC area, although EU and Japanese companies also anticipate solid gains in output. We already know about rosy prospects for BRIC, but US’s leadership position is unexpected and a pleasant surprise. Brazil is set to post a particularly marked expansion, whereas India is expected to underperform its BRIC peers. Overall, revenues and profits are expected to increase at solid rates.

Services are expected to lead manufacturing by a slight amount in this recovery, as typically service industries are much faster to react to demand upturns that longer lead time manufacturing industries. Correspondingly, hiring intentions are strongest in the service sector, although manufacturers also anticipate a rise in staffing levels.

The most upbeat expectations for activity in the service sector are by Post & Teleco companies, followed by Renting & Business Activities firms. In manufacturing, confidence is highest in the Chemicals & Plastics and Timber & Paper sectors. Further, within services, labor-related costs are predicted to be a higher contributing factor to inflation than outsourcing and all other non-staff costs.

Inflation is expected to show up in 2010, as both input costs and output prices are expected to increase, although at a benign rate, with inflationary expectations being highest in the BRIC region. Japanese companies, as in previous years, are anticipating continued deflation.

On the jobs front, the one-year outlook comes out looking broadly positive. Jobs are expected to be added in both services and manufacturing sectors, with services leading the way. Among all nations, the BRIC countries and the US are expected to lead the expansion. European service providers anticipate only a modest rise in staffing levels, mainly Italy, the UK and France, while Japanese companies are looking to a marginal reduction.

We have said earlier that Big Four firm surveys are a good barometer of executive mood and actual business performance and act as a leading indicator of when the world economies will emerge from their slump. Over the last six months, we have noticed that surveys from PricewaterhouseCoopers, Deloitte and Grant Thornton have all been signaling that the worst is over, and optimism is generally back. This corroborates other business and consumer confidence indices all over the world, as well as a good upswing in stock and asset prices since March 2009. This comprehensive survey from KPMG only validates the recovery story better. The survey has a lot of coverage on results by individual country and sector and recommended reading for those planning, budgeting, investing, hiring or otherwise interested in the global prospects for 2010.

The complete 69 page survey is at http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/Business-Outlook-survey-November-2009.aspx

The survey uses net balances to indicate the degree of future optimism or pessimism for each variables, which can vary between -100 and 100. A value of 0.0 signals a neutral outlook for the coming 12 months. Values above 0.0 indicate optimism amongst companies while values below 0.0 indicate pessimism. The net balance figure is calculated by deducting the percentage number of survey respondents expecting a deterioration/decrease in a variable over the next twelve months from the percentage number of survey respondents expecting an improvement/increase. The current report is based on responses from around 6,200 service and manufacturing firms worldwide.

Deloitte Versus KPMG in Dubai World Saga

2009-11-29T09:56:00.001-05:00

Just in the last few days, Dubai World (DW) shocked investors all across the world in announcing that it will take steps to seek a six month standstill period on payments of interest and principal on $59 billion of its outstanding debt. This terse and surprising announcement on late Thursday November 25, 2009, the eve of a national holiday in Dubai, spooked stockmarkets all over the globe, with Asian and European markets reacting immediately on open with a 3% drop, before recovering somewhat over the day on Friday.

Middle Eastern and South Asian markets, countries with most exposure to Dubai business, dropped precipitously if not in percentage terms, then certainly in confidence in the city-state’s future. On Thursday, the first full trading day in Europe since Dubai’s announcement, the FTSE 100 index in London lost 3% to close down 171 points, the DAX index in Germany fell 3.25% and the CAC-40 index in France lost 3.41%. In Tokyo, the Nikkei 225 stock average, was less affected, falling about 0.62%.

Dubai World (DW) is Dubai’s (one of the seven United Arab Emirates) state investment fund which makes portfolio and real estate investments both in the country and abroad, including the QE2 cruise liner, the Emirates airline and the Travelodge budget hotel. DW’s debt of $59 billion is 75% of the total $80 billion debt of the country. DW has principal real estate investments through its arm Nakheel with its glamorous resorts on man-made beaches at the Palm, exotic seven star hotels and the tallest building in the world.

Property prices in Dubai have slumped and buyers are nowhere in sight, thus sharply reducing incoming funds, while debt burden continues. DW borrowed heavily from commercial banks, especially in the UK to fund its various investments, and at that time, with the go-go attitude in the sheikdom, and with the implicit backing of a supportive government, banks were happy to part with their money. What seemed quite normal at that time is likely causing a lot of heartache now.

Dubai World has hired Deloitte and Rothschild to assist in its efforts to gain a standstill period from its debtors DW had a $3.5 billion bond payment due in December and wants some breathing space on all debt repayments which are due until the end of May 2010.

Aidan Birkett, the head of Deloitte UK’s 1,200 strong London Corporate Finance practice flew immediately on Wednesday with a large support contingent to Dubai. Aidan Birkett has handled such cases earlier and is no stranger to big-ticket debt restructurings. See his profile at

http://www.deloitte.com/view/en_GB/uk/services/corporate-finance/article/96909311586fb110VgnVCM100000ba42f00aRCRD.htm
http://www.deloitte.com/view/en_GB/uk/services/corporate-finance/press-release/e2e99c9096ffd110VgnVCM100000ba42f00aRCRD.htm

A Deloitte spokesman said: 'We can confirm that Aidan Birkett, managing director for corporate finance at Deloitte, has been appointed chief restructuring officer to Dubai World.'

Interestingly Aidan Birkett left PricewaterhouseCoopers UK in October 2000 along with three other senior partners Andrew Grimstone, Jerry Loftus and Stephen Knight to join Deloitte UK.

There seems to be some talk now that Abu Dhabi, Dubai’s oil-rich sister emirate would bail out DW to protect the credit rating and stature of the entire UAE, but again there is no definitive agreement that this would happen right away. Abu Dhabi has reportedly said that it would not do a blank-check bailout but deal with the issue on a case by case basis.

On the other side of the fence, big UK banks, namely HSBC, Royal Bank of Scotland, Lloyds Banking Group and Standard Chartered reportedly hold $30 billion or 50% of this debt and consequently quite invested to defend their interests and get the best deal possible on reclaiming their money back from the beleaguered DW. Data from the Emirates Banks Association shows that HSBC has exposure of $17bn, Barclays of $3.6bn and RBS has about $2.2bn.

They have hired KPMG to assist them in this endeavor, though there are reports that PwC is also in the running. KPMG will be formally appointed once the creditor banks have created a steering committee comprising five or six of the main lenders to lead the negotiations, it added. No one apparently at KPMG was immediately available to comment.

So, its Big4 firm versus Big4 firm in a battle that is certainly the first business news today all across the world. One issue that we would point out is that KPMG is the statutory auditor for one of DW’s portfolio subsidiary companies - Dubai Ports World (DP World), and this would create certainly, a direct if not indirect conflict, for KPMG, though at this point it is not clear how this conflict is going to be resolved. http://www.dpworld.com/ar/2008/inc/2008_DP_World_Annual_Report.pdf

In an editorial in the UK’s The Telegraph, influential bond investor, Mohamed A El-Erian, CEO and co-CIO of PIMCO said it in clear terms of why this is such a key development for the world, “Let Dubai be a reminder to all: last year's financial crisis was a consequential phenomenon whose lagged impact is yet to play out fully in the economic, financial, institutional and political arenas.”

See his entire editorial at
http://www.telegraph.co.uk/finance/economics/6678194/Dubai-what-the-immediate-future-holds.html

What drove the choice of Deloitte and KPMG is also not very clear at this time, why E&Y and PwC are out of the picture either by choice or by refusal is also not fully known. We will certainly learn more as this saga unfolds over the next few weeks, and we will keep you updated on latest developments as with the key role played by the Big Four firms in this riveting story.

Of course, if our readers have more news, ideas, insights or comments, we welcome their input.

Ernst and Young’s Top Entrepreneurs Maintain Vision Despite Tough Conditions

2009-11-23T17:27:00.000-05:00

Entrepreneurs are hardy folks. Undeterred by current circumstances, they are entirely focused on their vision and a rosier tomorrow.

And in this deep and difficult recession, Ernst & Young found that entrepreneur-driven companies are still looking for growth and opportunity in these tough times by adapting their operating methods to set themselves up for market leadership when the economy does turn to the upside.

Ernst & Young surveyed the 250 winners of the 2009 Entrepreneur Of The Year program, and came up with these valuable findings from respondents:

Growth remains number one. Despite the downturn, 78% are still pursuing growth opportunities.

Clearly customers are always right. 78% have increased their focus on customer satisfaction and loyalty. 75% have plans to expand into new customer segments/ geographies.

Cash is king. However, only a fourth were still seeking to secure their cash position.

Maintaining innovation is critical. 60% wish to implement technology for higher business efficiency or accelerated growth.

Some M&A in the offing. 49% are thinking of purchasing distressed competitors, and 55% think the reason for such transactions would be to add strategic value as well as business growth.

Risk is being scrutinized. 37% place higher emphasis on geographic risk exposure

Act now. 45% are increasing the how quickly they are making decisions since the economic downturn.

Employee motivation. 57% are pushing their communication and transparency harder to retain employees. 46% are using the downturn as an opportunity to fill key strategic posts.

Entrepreneurs are some different as E&Y finds from other mature multinational firms in having higher emphasis on growth and acquisitions.

“This survey confirms that, even in the worst times, future market leaders are looking for growth…. Such trailblazers will be vital to the world’s economic recovery.” said Greg Ericksen, Global Vice Chair, Strategic Growth Markets, Ernst & Young.

We can recall hearing of many studies which indicate that the fastest-growth companies are born in a recession. Tough economic conditions provide the breeding ground for innovative, cost-focused, nimble and niche-focused companies. Why? Recessions mean lower competition, recessions means more focus on cash flows and recessions mean creativity to secure niches and gain revenues from demanding customers. Its not easy at all, since demand dries up totally and it calls upon guts and will to keep going in the face of current depression and hopes for a better tomorrow.

But E&Y’s selection of visionary entrepreneurs do stand out for a key reason. They seem to look past the cloud of economic downturn and to the silver lining. Growth and customers are the lifeblood of any business, and by staying focused on what brings in the cash into the door, this mindset lays out a good game plan for all business owners to survive and thrive.

When things do turn around, look for these terrific companies run by E&Y Entrepreneurs of the Year to show the path to success.

Deloitte Finds 2009 Holiday Shoppers Will Use A Lot More Social Media

2009-11-16T16:02:00.000-05:00

Deloitte’s recently published 24th Annual Holiday Survey of retail spending and trends vindicates what you are likely seeing all around you. Consumers are expected to increasingly use social media for their holiday shopping this year.

Deloitte finds 17% of consumers plan to use social media in their holiday shopping, and among those, 60% plan to use it to find discounts, coupons and sale information. 53% plan to use social media to research gift ideas and 52% plan to check the gift wish lists of friends and family.

In terms of user demographics, 52% are 18-29 years old, 33% are 30-44 years old and 12% are 45-60 years old. 19% plan to use their cell phone to find store locations, research prices, find product info, get discounts and coupons and read reviews. 25% expect to make a holiday purchase with their phone. 22% will shop primarily online this year, and 44% will use an online coupon.

Here are some more interesting findings:

Consumers May Not Return to Old Habits
Consumers have not only changed their shopping habits for this year, but this could well be a permanent change. 26% will spend less in the future than prior to the recession. 44% say they are loyal to stores they like, but make fewer trips or purchase less at them. According to Deloitte’s Stacey Janiak, “…Consumers will not return to spending levels seen before the recession anytime soon, and high-volume discretionary purchasing could remain a thing of the past.”

Men More Optimistic Than Women and Spending More
Women are less optimistic about the economy, and 53% of women would spend less this holiday season, compared to 43% of men. 50% women say the economy will improve next year, compared to 58%.

Sustained Interest in Green
20% say they plan to purchase more eco-friendly products this holiday season than they did in the past. 47% are willing to pay more for a green gift.

The survey polled 10,878 consumers between September 24 and October 2, 2009.

Here’s what we have to say:

First, this is a big win for social media in general and also for US consumers. Last year, social media (whether it be Twitter, Facebook, MySpace or LinkedIn) would not have made the radar either in terms of affecting the overall consumer psyche, much less impact retail buying behavior. US consumers are turning out to be a smart lot and social media has also gained ground. So it does make a whole lot of sense that cost-conscious consumers with increasing usage of networks, connections and friends are able to scout out and take advantage of deals. It’s harder to say whether retailers will win or lose, clearly lowest prices will be discovered quickly and consumers will gravitate to them, but retailers can also use social media and use viral marketing to their advantage to buzz their products at fractions of cost of normal advertising.

Second, we wonder how social media will be used. Will stores Twitter about what’s on sale on a shelf? Will you get instant info on whether size 9 is available at Neiman Marcus in the color you’re looking for? Will your friend Twitter you on a great discount she has found? Will retailers announce midnite sales with throwaway prices and bitly their coupon? Will you get a sales invite or coupon from your friend on Facebook? Will you become a fan of Sports Authority and buy a golf set when it comes on sale? Will groups of friends on Facebook converge at a retailer site to make a bulk purchase to gain discounts? And many such others.

Third, we would not be surprised if both consumers and retailers find innovative ways to clear both the information and goods market. This is the serendipitous juxtaposition of a high volume of consumers, retailers and smart social media platforms. And this will likely lead someone to come up with a unique way to leverage social media, and some sharp entrepreneur will pick it up create a new service. Exciting, isn’t it?

In any case, don't be surprised this year if you see one of every three 38-year old women set down their iphones in a mall, expand a bitly link on their Twitter account, come up with the bar code on Twitpic and scan it on the cash register to get a pure cashmere wool sweater, originally $125, for just $32!! That’s the real deal.

A Wake-up Call For America

2009-11-16T13:48:00.001-05:00

We saw this on the Grant Thornton home page, and the title was so tantalizing, it was too good not to dig in and blog about it.

This recently released study by David Weild and Edward Kim indicates that a sharp fall in US publicly listed companies is generally driving a depression in US stock markets and further, that it has inhibited economic recovery, impaired the job market and undermined U.S.competitiveness. The deep underlying cause for this – severe changes to the market structure over the last twenty years.

The effects are well known, and we read the authors’ 44 page report to see if the connection to IPOs is well founded. We’ll quote verbatim from the report to make points and we’ll add our own analysis and observations.

First of all, we must say it is a compelling read with some disturbing trends and conclusions that vividly show that the US has experienced serious decline of leadership in the IPO market, and overseas markets have seen rapid growth in IPO listings, especially in Asia, where listings have more than exceeded their strong GDP performance.

“The Great Depression in Listings,” as Grant Thornton calls it, is the precipitous decline over the last decade in the number of publicly listed companies in the United States. Consider in 2008, there were 6,943 publicly listed companies in the US, a full 38% lower than the previous peak of 8,823 US companies, and this comparison looks even worse at minus 55% if you adjust this number for intervening GDP growth. The authors think that the number of companies in the US should actually double to keep up with “replacement” level of what is needed on a relative basis.

What has led to this significant drop? The authors list three key causes:

1. Problems in market structure are undermining the United States’ global competitiveness. Essentially, US listed markets are in secular decline since 1991

2. The number of new listings needed merely to maintain the United States’ listed markets is much larger than expected. US lags Asia and its capacity to generate new listings is well below replacement needs. The US needs 360 new listings per year merely to maintain a steady number of listed companies in the U.S.

3. The lack of new listings in the United States’ markets is threatening the U.S. job market. This impacts small businesses the most, and the authors calculate that up to 22 million jobs may have been lost because of the broken US IPO market.

Grant Thornton has a strong argument that the underlying reason for “The Great Depression in Listings” is not Sarbanes-Oxley, but what they call “The Great Delisting
Machine,” an array of regulatory changes that were meant to advance low-cost trading, but have had the unintended consequence of stripping economic support for the value
components (quality sell-side research, capital commitment and sales) that are needed to support markets, especially for smaller capitalization companies. GT cautions that today, capital formation in the U.S. is on life support. Within the venture capital universe, the average time from first venture investment to IPO has more than doubled.

The authors content that low cost trading, the advent of the online brokerage (ETrade, Ameritrade etc.), new order handling rules, decimalization (remember the cute fractions for stock prices), Sarbox and the global research settlement has led to a culture of “Casino Capitalism” in the US markets. Black pools of capital, unregulated hedge funds, naked and predatory shorting, high-frequency trading, and credit defaults swaps (the menace which led to this recent recession) are all rampant and rapidly spreading in US markets. The charts show that high frequency trading accounts for 70% of all US equities trading.

Is all lost? The authors point to two solutions which can help, and Grant Thornton urges Congress and the SEC to hold immediate hearings to understand why the U.S. markets have shed listings at a rate faster than any other developed market, and to pursue solutions that, together with thoughtful oversight, will advance the U.S. economy, grow jobs, better protect consumers and reduce the deficit — all without major expenditures by the U.S. government:

1. Alternative public market segment: A public market solution that provides an economic model to support the “value components” (research, sales and capital commitment) in the marketplace. This solution would establish a new, parallel market segment that benefits from a fixed spread and commission structure. It would be subject to traditional SEC registration and reporting oversight (e.g., annual and quarterly reporting, Sarbanes-Oxley compliance).

2. Enhancements to the private market: A private market solution that enables the creation of a qualified investor marketplace — consisting of both institutional investors and large accredited investors — that allows issuers to defer many of the costs associated with becoming a public company before they are ready for an IPO. This market would serve as an important bridge to an IPO.

The first one is almost a throwback to the eighties with fixed commissions to support value-adding trading activites, while the second calls for a shadow market where unregistered securities can be freely transacted by legal investors.

The report is full of charts which support the (rather distressing) conclusions, and Grant Thornton has provided insights and trends not heretofore studied in this manner. The historical facts are clear and point to a crisis in IPO markets in the US.

The authors draw a dramatic conclusion that 22 million jobs have been potentially lost due to the decline of IPO listings since 1997. This is a huge number, and though the presented math seems to support this, it is arguable whether so many jobs have not been created in the US, and conversely if the IPO market were to revive, that we could create equal numbers on the rebound. Clearly, a large number of US jobs have not been created since more companies did list outside the US - but 22 million, that just stretches our envelope. Does going IPO automatically create jobs? And don’t pre-IPO companies hire employees, regardless of whether they list in the US or not?

Doubtless, there is a crisis in the US IPO markets, and this issue is getting compounded each year. If action were not taken now, the US could lose the lead it has held for decades in global capital markets. The situation is dire indeed, and all regulators and lawmakers should react to save the US from certain followership.

This report is a must-read for all players in the capital market space, and we trust you will find the results equally astounding.

Clearly, this is a wake up call for America, and the title does full justice to the seriousness of this problem.

Here's the report on GT's website.

Checkout Our “The Best Of “Twitter Lists – Love Your DM or RT

2009-11-09T17:54:00.001-05:00

Twitter just released its latest exciting functionality - Twitter Lists, and we think it’s awesome and very timely.

It allows us to curate who we think are the most appropriate Tweeters to follow in our niche space of The Big Four Firms, accounting, finance, tax, jobs and related topics.

We have already created some list, which we are calling “The Best Of”. We rather like this name, but we’ll evolve as lists get more ingrained, and may change.

For example after our search, all the Twitterers we think are most relevant to follow for Deloitte happenings in the Twitter universe, we have added to our “The Best of Deloitte” list.

This is our subjective selection, and we think it's a pretty good one. That’s not to say that we have completely covered all the bases, so if there is someone that just needs to be on or off any of these lists, please DM or shout out to us @big4alum. Thanks in advance.

Also, we’ll continue to refine and add/subtract to this list over time, but our intent is to keep them highly relevant and focused. We see that some of our list already have some followers and no doubt this will pick up as Twitter Lists get more ingrained and Twitter itself allows tweets and Twitter Lists to be retweeted.

So, here are our lists – follow us or follow the lists, and keep that feedback going!!

All The Lists
http://twitter.com/big4alum/lists

Best of Accenture

http://twitter.com/big4alum/best-of-accenture

Best of Capgemini

http://twitter.com/big4alum/best-of-capgemini

Best of Deloitte
http://twitter.com/big4alum/best-of-deloitte

Best of Ernst & Young
http://twitter.com/big4alum/best-of-ernst-young

Best of KPMG
http://twitter.com/big4alum/best-of-kpmg

Best of PricewaterhouseCoopers

http://twitter.com/big4alum/best-of-pwc

Best of Accounting

http://twitter.com/big4alum/best-of-accounting

Best of Finance

http://twitter.com/big4alum/best-of-finance

Best of Tax

http://twitter.com/big4alum/best-of-tax

Again, we’re at http://www.twitter.com/big4alum

Top Companies in Deloitte’s 2009 Tech Fast 500 Sport Phenomenal Sales Growth

2009-11-07T14:30:00.002-05:00

Recently, Deloitte released its 2009 Technology Fast 500 Rankings, an annual ranking of the fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America.

The criterion – grow the fastest in revenue over five years. And the number 1 winner - ReachLocal, a privately-held global provider of localized Internet advertising solutions based in Woodland Hills, CA, with revenue of $147 million and a 5-year fiscal growth rate of (get this!) 146,050% percent. In 2004, ReachLocal’s revenues were just $100,000 and in 2008, its revenues had catapulted to $147 million, yes that’s in millions.

And here’s what this company does: “ReachLocal brings order to the fragmented local Internet by connecting advertisers, publishers, and creative solutions providers together on one platform. Wherever customers are online, ReachLocal helps businesses find them with the broadest reach of local digital media, a dedicated force of local Internet Marketing Consultants, and technology that continually optimizes results.”

Here are the top ten winners of this ranked list:

(Rank Company Sector Five-year Revenue Growth CEO)

1 ReachLocal Internet 146050% Zorik Gordon
www.reachlocal.com

2 Infinera Corporation Communications/Networking 86580% Jagdeep Singh
www.infinera.com

3 Affymax, Inc. Biotechnology/Pharmaceutical 54768% Arlene M. Morris
www.affymax.com

4 Hughes Communications, Inc. Communications/Networking 49988% Pradman P. Kaul
www.hughes.com

5 Entropic Communications, Inc. Semiconductor 40691% Patrick Henry
www.entropic.com

6 Onyx Pharmaceuticals, Inc. Biotechnology/Pharmaceutical 38769% N. Anthony Coles
www.onyx-pharm.com

7 Data Domain, Inc. Computers/Peripherals 35084% Frank Slootman
www.datadomain.com

8 Genomic Health, Inc. Biotechnology/Pharmaceutical 33716% Kimberly Popovits
www.genomichealth.com

9 Zila, Inc. Biotechnology/Pharmaceutical 27715% David R. Bethune
www.zila.com

10 Force10 Networks, Inc. Communications/Networking 24528% Henry Wasik
www.force10networks.com

Here are some interesting facts about this ranking:

The Western region of the United States has the highest concentration of ranked companies (34%), followed by the Northeast (28%), Southeast (15%), Canada (10%), Southwest (8%) and Midwest (5%).
The software sector was 38% with 189 companies, followed by communications/networking (16%), biotechnology/pharmaceuticals (13%) and Internet (9%). Comprising the balance 24% were medical equipment, scientific/technical instrumentation, computer/peripherals, semiconductors, media/entertainment and clean technology companies.

In the top 10, there were 4 biotech and pharma but no software companies. Deloitte added clean technology as a new category in 2009 and 7 companies made the list.

The average growth rate for the Fast 500 fell by 720% to 2,486% in 2009, from 3,206% in 2008. The 10-year high was recorded in 2002, when the overall average growth rate was 6,772%, the 10-year low was in 2007 with average growth of 1,823%.

To make this list, current-year revenues must exceed $5 million USD or CD, and doubled in last 5 years.

We are quite amazed by the ultra-strong growth exhibited by these Fast 500 Tech companies, clearly with the average company growing by 2,500% means that they have multiplied their sales by 2.5 times in five years. Clearly, such growth is mainly doable in tech companies, where innovative research, visionary management and new solutions can find receptive customers, either by changing the current paradigm or offering services which provide value to a growing list of customers. Also interesting to note the total absence of software companies in the top 10, is the era of Microsofts gone for ever?

Given that statistically, most small businesses fail in their first five years of starting up, these companies deserve much acclaim, and thanks to Deloitte for granting that much needed recognition.

Deloitte’s 2009 Technology Fast 500™ Ranking

Huron Consulting Group Q3-2009 Operations Strong, Shares Zoom

2009-11-05T20:22:00.000-05:00

Huron Consulting Group Inc. (NASDAQ: HURN) just reported its Q3-2009 results, with revenues of $172.2 million increasing 2.1% from $168.7 million in Q3-2008 and up sequentially from $165.8 million in Q2-2009. However, more importantly, Huron took a $106.0 million non-cash pretax goodwill impairment charge, about 20% of the total goodwill balance of $506.5 million as of June 30, 2009. In addition, there were restructuring and restatement charges of $15.1 million. The GAAP loss per share including the aforementioned charges was $(3.16) in Q3-2009 compared to diluted earnings per share of $0.12 in Q3 2008.

Non-GAAP adjusted diluted earnings per share was $0.59 in Q3 2009 compared to $0.86 for Q3 2008(7). This change is almost entirely due to the increase in the effective tax rate. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which excludes share-based compensation expense, non-cash compensation expense, restructuring charges, non-recurring expenses related to the restatement, goodwill impairment charge, and an other gain, was $38.1 million, or 22.1% of revenues for the third quarter, compared to $40.8 million, or 24.2% of revenues, in the comparable quarter last year.

Average number of full-time billable consultants totaled 1,430 for Q3-2009 compared to 1,488 for Q3-2008. Average number of full-time equivalent professionals totaled 861 for Q3 2009 compared to 947 in the same period last year.

By terms of Operating Segments comparing Q3-2009 versus Q3-2008, Health and Education Consulting revenues increased 30%, Legal Consulting revenues dropped 23%, Accounting & Financial Consulting sales fell 24%, and Corporate Consulting revenues fell 14%. Thus, the 2% increase in sales for the company covered a lot of difference in performance across segments.

Digging below the reported loss, Huron actually had some good financial nuggets in this quarter’s results. Cash from operations did increase from $44 million in Q3-2008 to $52 million in Q3-2009. And cash on the balance sheet increased from $14 million in Q3-2008 to $27 million in Q3-2009.

The accounting restatement of $106 million, from the goodwill impairment, had only a non-cash impact on financial results.

Huron indicated for full year 2009, revenues would be in an updated range of $650 million to $665 million. The Company also anticipated GAAP loss per share in a range of $(2.01) to $(1.80), non-GAAP adjusted diluted earnings per share in a range of $2.85 to $3.05, loss before interest, taxes, depreciation and amortization in a range of $(13) million to $(8) million, and Adjusted EBITDA in a range of $139 million to $144 million.

These were quite good results and investors cheered, pushing the stock up 16% (HURN open $24.57 to $26.99 at 10 am) on the open, and up 10% ($25.90 at 4 pm) at the end of trading today November 5, 2009.

Why? Huron’s operations seemingly are intact. Q3-2009 revenues actually rose and operating income and adjusted EBITDA fell only slightly. The accounting restatement had only a non-cash impact on financials, and more critically, the issue was contained, measured and fully absorbed in just a few months after disclosure. Hopefully it is done.

Clients don’t seem to be abandoning Huron as was widely anticipated, if anything Health and Education clients are giving more business to Huron. Sales in the other segments did decrease, this may be due to general economic slowdown. Huron has fewer consultants than it had a year ago, but utilization has only fallen by a few percentage points. Costs are being managed in line with top line declines.

2009 outlook of revenues of $660-$665 million are almost flat to full year 2008. This is cash coming into the door paid for by clients who are purchasing Huron services. Also, full year 2009 EBITDA of $139-$144 million is higher than $122 million of EBITDA in full year 2008.

The stock is on its climb back, it fell from $45 at end of July 2009 to $12 after the goodwill announcement, but has more than doubled since that time. As we have blogged earlier, this seems to be a cloud rather than a cancer for the company, if new management sets things right for investors and clients stay, HURN could potentially look to regain its erstwhile level of stock price in the medium term.

Here’s some background on the accounting restatement right from their release:

“The Company announced on July 31, 2009 that it would restate its financial statements for the fiscal years 2006, 2007 and 2008 and the first quarter of 2009. On August 17, 2009, Huron completed the restatement. The restatement pertained to the accounting for certain acquisition-related payments received by selling shareholders of four acquired businesses that were subsequently redistributed by such selling shareholders among themselves and to other select client-serving and administrative Company employees based, in part, on continuing employment with the Company or the achievement of personal performance measures.

The selling shareholders were not prohibited from redistributing such acquisition-related payments under the terms of the purchase agreements with the Company for the acquisitions of the acquired businesses. However, under GAAP, such payments were imputed to the Company, and the portion of such payments redistributed based on performance or employment was required to be reflected as non-cash compensation expense of the Company, even though the amounts received by the selling shareholders did not differ significantly from the amounts they would have received if such portion had been distributed solely in accordance with their ownership interests. The restatement was necessary because the Company did not record such portions of the acquisition-related payments as a separate non-cash compensation expense with a corresponding increase in paid-in capital.

Based on the results of the Company’s inquiry into the acquisition-related payments to date and the previously disclosed agreement amendments with the selling shareholders, earn-out payments for periods after August 1, 2009 are accounted for as additional purchase consideration and not also as non-cash compensation expense. The Company recognized $1.2 million of additional non-cash compensation expense during the third quarter of 2009 related to the redistributed acquisition-related payments for the period from July 1 to July 31, 2009.

The restatement resulted in a reduction of approximately $56 million in net income and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for all restated periods. However, the restatement had no effect on Huron’s total assets, total liabilities or total stockholders’ equity on an annual basis. Further, the Company did not expend additional cash with respect to the compensation charge, and the restatement had no effect on Huron’s cash or net cash flows from operations.

As a result of the significant decline in the price of the Company’s common stock following the Company’s July 31, 2009 announcement of its intention to restate its financial statements, the Company engaged in the previously announced impairment analysis with respect to the carrying value of its goodwill in connection with the preparation of the financial statements for the quarter ended September 30, 2009, and recorded a $106.0 million non-cash pretax charge for the impairment of goodwill, which was approximately 20% of the Company’s total goodwill balance of $506.5 million as of June 30, 2009. The impairment charge was recognized to reduce the carrying value of goodwill associated with the Company’s Accounting & Financial Consulting and Corporate Consulting segments. The impairment charge is non-cash in nature and does not affect the Company’s liquidity.”

Capgemini Q3-2009 Revenue Down 9%, But Confirms 7% Operating Margin for 2009

2009-11-05T19:18:00.000-05:00

Capgemini just reported its Q3-2009 financial results with revenues of EUR 1,946 million, which was 9.0% below Q3-2008 revenues of EUR 2,098 million on constant exchange rates. On a reported basis revenues were 7.3% lower. Capgemini attributed this to a decline in the economic environment, and a sharp reduction in corporate IT spending.

In terms of segments, Consulting Services and Local Professional Services revenues fell 12.5% on average, and those activities most vulnerable to the economic cycle falling the most. Outsourcing Services provided an offsetting effect with a 2.7% decline in revenues due to the expected – and announced – fall in business under a major contract in North America.

In terms of geography, UK and Ireland revenues gained 1.5%, North America revenues fell 7.3%. Revenues in other regions fell 13.3% on average, with France posting a fall of 9.9%.

Q3-2009 bookings were EUR 1,981 million, with Outsourcing Services bookings increasing 7% over Q3-2008, in Consulting Services, Technology Services and Local Professional Services, the book-to-bill ratio remained above 1.

Capgemini provided some forecasts for Q4-2009, estimating it would drop 9% versus Q4-2008, but the company confirmed an operating margin % of around 7% for full-year 2009. Capgemini indicated that signs that activity is stabilizing and even picking up in some market segments, though benefits are not expected to filter through immediately.

Let’s break down this for some interesting conclusions:

First, the revenue decline is generally in line with Accenture’s Q4-2009 and other Big4 firms which have recently reported. Capgemini reports in Euros, so it was spared some of the negative impacts of the appreciating US dollar which hurt many of the other Big Four which report in US dollars.

Second, Outsourcing is clearly resonating with clients, and cost-conscious customers are looking to large IT companies to help them reduce their own infrastructure costs. A relatively smaller fall in Outsourcing revenues is also in line with what Accenture recently reported.

Third, bookings in the Q3-2009 were actually slightly ahead of revenue, indicating that the pipeline is not growing as fast as one would like, but certainly not shrinking.

Fourthly, Q4-2009 guidance of a 9% drop indicates that the second half of 2009 would be weaker than what Capgemini guided in its Q2-2009 earnings release, where it indicated that H2-2009 revenues would drop between 4% and 6%. The company seems to be managing costs in a tough environment and keeping expenses generally in line with the decline in top line. Operating margin in 2009 is expected to be 7% versus 8.5% achieved in full year 2008.

Finally, recent reports and chatter on Twitter indicates that Capgemini will be strongly expanding in India, and pushing its Business Information Management services. With Outsourcing strong and Kanbay hopefully fully incorporated into operations, India clearly seems to be a strong source of revenue and growth for the company in the future.

Investors seemed to be quite neutral to this announcement and the stock stayed about EUR 31 per share on Euronext, though Capgemini has retreated from its highs of around EUR 37 reached in mid October 2009.

With markets stabilizing, and reasonable growth prospects ahead, 2010 may show better results from the company.

All Big Four Firms Make The World’s Top 50 Most Attractive Employers List

2009-10-27T19:56:00.002-04:00

We have blogged earlier about Universum, the employer branding company, particularly on their MBA and undergraduate surveys of top employers. The Big Four firms, Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers and Accenture typically make the top ranks in their surveys.

Now they have come up with the world’s Top 50 most attractive employers, their first global index of employer attractiveness which highlights the world’s most powerful employer brands, those companies that excel in talent attraction and retention.

To come up with these results, nearly 120,000 students at top academic institutions in US, Japan, China, Germany, France, UK, Italy, Russia, Spain, Canada and India chose their ideal companies to work for.

And the Big Four firms are again on the very top of this list. Against some very tough competition and some very tough critics (students!) all the firms made the Top 10 Global top 50 business list, in august company of Google, Goldman Sachs, McKinsey and Microsoft. Accenture was just a tad behind at rank 23.

Global Top 50 Business

Company Ranking 2009

Google 1
PricewaterhouseCoopers 2
Microsoft 3
Goldman Sachs 4
Ernst & Young 5
Procter & Gamble 6
J.P. Morgan 7
KPMG 8
McKinsey & Company 9
Deloitte 10

Accenture 23

Interestingly, Universum also put together a global top 50 engineering company list, and the Big Four firms also make good rankings on that list as well, again aside top companies such as IBM, Intel, BMW and General Electric. In this list, Accenture was the first of the Big Four at rank 20, with KPMG making the last of the lot at rank 47. Big Four firms are not typically known for engineering, so we are certainly surprised at this. Perhaps the definition is broader than just hardcore engineering, in which case, the Big Four firms do offer services in hardware, software, outsourcing, system design, ERP, social media and disciplines related to business information technology.

Global Top 50 Engineering

Company Ranking 2009
Google 1
Microsoft 2
IBM 3
BMW 4
Intel 5

Accenture 20
Deloitte 29
Ernst & Young 33
PricewaterhouseCoopers 37
KPMG 47

In any case, Big Four professionals can feel quite proud of this ranking, and alumni can use this in their cocktail conversations!

Big Four Firms Dominate UK’s Large Cap Market, Is Big Three Possible?

2009-10-27T17:00:00.001-04:00

The Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance just published its Fourth Progress Report on the implementation of the MPG recommendations on Promoting Choice in the UK Audit Market.

While the report generally deals with progress on a number of FRC’s key strategic initiatives, there is a very interesting analysis on the concentration of the auditing market in the UK which is dominated by the Big Four firms, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.

Here is the summary conclusion from the report, “Appendix 2 shows changes in market concentration from 2006 to August 2009. Since that date the market has see a slight increase in the number of FTSE 350 companies with non‐Big Four auditors, although looking at the latest figures compared with those in February 2009, it is possible that this trend may now have stalled. Subsequent to August 2009, the FRC is aware of at least one FTSE 350 company which has changed from a non‐Big Four auditor to a Big Four firm. Non‐Big Four firms remain strong in AIM and to a lesser extent in the FTSE Small Cap and Fledgling indices.”

This Appendix has a lot of information on market concentration statistics. Essentially it looks at public companies represented in the four key UK indices (FTSE 100, FTSE 250, FTSE Small Cap and AIM) and shows the percentage of public companies in each index audited either by a Big Four or non Big Four firm. The time period spans November 2006 to August 2009.

There are some startling findings and interesting conclusions from this study.

In the FTSE 100 in August 2009, PwC audited 41% of public companies, KPMG audited 25%, Deloitte audited 21%, E&Y audited 15% and non-Big Four audited 1%. In the FTSE 100 in November 2006, PwC audited 42% of public companies, KPMG audited 22%, Deloitte audited 18%, E&Y audited 17% and non-Big Four audited 0%.

In this large capitalization segment, it is clear that the Big Four firms clearly dominate this market. Non Big Four firms have a negligible share of this market. Yes, that’s a measly 1%. It is certainly up from 0% a few years ago, but nothing to write home about. It also appears that KPMG and Deloitte took share from other two Big Four firms, this could be due to the large size of KPMG UK and KPMG Europe; and Deloitte’s increasing share of the Big Four pie.

In the FTSE 250 in August 2009, PwC audited 28% of public companies, KPMG audited 21%, Deloitte audited 26%, E&Y audited 20% and non-Big Four audited 6%. In the FTSE 250 in November 2006, PwC audited 31% of public companies, KPMG audited 23%, Deloitte audited 24%, E&Y audited 19% and non-Big Four audited 3%.

In this larger set of public companies, while the Big Four firms have a majority share, non Big Four firms have a reasonable share which has doubled in recent years. PwC’s share loss is noticeable over this period

In the FTSE Small Cap in August 2009, PwC audited 22% of public companies, KPMG audited 21%, Deloitte audited 19%, E&Y audited 18% and non-Big Four audited 20%. In the FTSE Small Cap in November 2006, PwC audited 23% of public companies, KPMG audited 20%, Deloitte audited 18%, E&Y audited 20% and non-Big Four audited 19%.

In these smaller sized companies, it is clear that while the Big Four firms have a four-fifths of the market but the non Big Four firms also enjoy a 20% share.

In the AIM in August 2009, PwC audited 11% of public companies, KPMG audited 15%, Deloitte audited 11%, E&Y audited 8% and non-Big Four audited 55%. In the AIM in November 2006, PwC audited 10% of public companies, KPMG audited 13%, Deloitte audited 10%, E&Y audited 7% and non-Big Four audited 60%.

In the alternative market, the Big Four firms actually are in a minority position with the non Big Four firms having a majority share, though this share has decreased by a substantial 5% over the last few years.

Overall, it is evident that large public companies overwhelmingly choose Big Four firms as their auditors. The high concentration in this sub-segment clearly limits choice for multinational companies which may require either deep auditing expertise or substantial presence in countries all over the world, which clearly rules out smaller firms, leaving the field completely to the larger behemoths.

As we travel down into the smaller capitalization companies, non-Big Four firms have increasing share, either since the Big Four firms do not devote resources to penetrate this segment or the non Big Four firms offer more customized services to smaller clients who may not need the sophistication or breadth of a large public accounting firm. This stands to reason too. The loss of share of non-Big Four firms in AIM is troubling.

The demise of Andersen has significantly concentrated market power in just four firms. The exit of any one of these firms, if at all conceivable, can have a significant impairing impact on choice for clients. The choice is narrow already. Conflicts between audit, tax and consulting rules out certain choices for public auditors. And if that pool were to shrink, choice would completely disappear.

We have argued in our earlier blog posts that the reduction of the Big Four to Big Three would have serious financial impacts on the audit and tax industry, on financial markets and on investors in all countries all across the world. The structure in other countries may not be exactly as the UK, but quite similar, with Big Four firms dominating the upper client echelon. Financial regulators and market participants would at all costs avoid the failure or exit of any player or combination of players. We think No Deloitte & Young, No KPMGPwC, No EYPwC or any other alphabet soup. Consider that the KPMG was penalized $450 million in the US, but allowed to continue as a firm after paying that fine. The aftermath is too difficult, we believe, to live with.

While the ultimate fear of an exit may be unfounded, Paul Boyle, Chief Executive of the FRC, did say, “The FRC remains concerned about the significant uncertainty and cost which could arise in the event that one or more of the Big Four audit firms left the market. Regardless of the actions taken by market participants, this risk is likely to remain significant in the medium to long term. It remains to be seen whether market-led actions will prove to be sufficient to reduce this risk to an acceptable level.”

Clearly this is a concern for governmental regulators, and though Mr. Boyle claims the risk is “significant”, we would think that the possibility of occurrence is very small. The Big Four will continue to the Big Four for a long time to come. We really like our site name as it is!!

What do you think about exit, demise or combinations? Possible? Probable? Allowable? ???

Deloitte Revenues Grow 1% Local Currency, Now Just Behind PricewaterhouseCoopers

2009-10-26T11:25:00.000-04:00

Deloitte Touche Tohmatsu, the global firm, just came out with its fiscal 2009 revenues for the year ending May 31, 2009. 2009 full year global revenue was US$26.1 billion, an actual increase in local currency terms of 1%, but a drop of 4.9% in US dollar terms from 2008. The tough economic climate and appreciating US dollar were the two main factors in 2009 which impacted Deloitte as much as it did other Big Four firms. However, a 1% growth in local currency bested both

E&Y (0.2% increase in local currency http://bigfouralumni.blogspot.com/2009/09/ernst-young-external-challenges-drive.html) and

PwC (0.2% increase in local currency http://bigfouralumni.blogspot.com/2009/10/pwc-fy-2009-revenues-rise-modestly-from.html). KPMG is yet to report its 2009 results, as its year ends in September 30, 2009.

Despite this remarkable performance, Deloitte was unable to beat PwC to be the largest Big Four firm on the planet. Its 2009 revenues of $26.1 billion were behind PwC’s 2009 revenues of $26.2 billion by only $100 million or 0.4%. We indicated in our earlier post that a 4.5% decrease in Deloitte’s revenues in US$ terms would make it the largest among the Big4 firms. But this is only a statistical miss. By showing remarkable performance in 2009, arguably one of the toughest environments in recent memory, Deloitte has shown that it is a strong contender for the leadership position.

“Achieving positive growth in this exceptionally difficult economic environment was the result of close attention to the needs of clients and a strong commitment to professional excellence by our member firm professionals. Despite the tough economy, we remain focused on our vision to be the standard of excellence and will continue to invest in pursuit of this vision,” said Jim Quigley, CEO of Deloitte Touche Tohmatsu

By service line, Consulting was the fastest grower at 7.3% in local currency terms. In US$ terms, Consulting revenue grew 2% from $6.3 billion in 2008 to $6.5 billion in 2009. Audit was relatively flat against 2008 in local currency terms. In US$ terms, Audit shrank by 6.4% from $12.7 billion to $11.9 billion. Tax was also relatively flat against 2008 in local currency terms. In US$ terms, Tax revenues decreased by 5.5% from $6.0 billion to $5.7 billion. Financial Advisory Services revenue fell 6.1% in local currency terms, but in US$ terms, fell by 13.8% from $2.4 billion in 2008 to $2.0 billion in 2009, driven by lower M&A activity.

In terms of geography, Americas dropped 3.7% in US$ terms from $12.9 billion in 2008 to $12.5 billion in 2009. Europe, Middle East and Africa also dropped 9.0% in US$ terms from $11.3 billion in 2008 to $10.2 billion in 2009. Asia Pacific grew 4.7% in US$ terms from $3.2 billion in 2008 to $3.4 billion in 2009.

The Asia Pacific region had local currency growth of 7.6% and was the fastest-growing region for the fifth consecutive year. India grew 29.9%, Australia grew 11.5% and Japan grew 11.3% in local currency terms. Europe, Middle East, and Africa region (EMEA) grew 2% but Americas declined 1.3% in local currency. Africa, the Middle East, and Latin America and the Caribbean posted high growth of 21.3%, 15.6% and 13.7% respectively, in local currency.

Deloitte said that its aggregate compounded annual growth rate (CAGR) was 9.4 percent from 2005-2009 and 14.7 percent from 2005-2008, 2009 bringing an abrupt stop to a remarkable growth rate.

Employment at Deloitte was a bright spot, during 2009, the firm hired more than 40,000 professionals. The workforce now stands at 168,651 people globally, representing a 4.5% (7,351) increase from 161,300 in 2008. Assuming 32,649 left the firm for the net to increase, the attrition rate comes out to be 20% in 2009 (32,649/161,300).

Some other interesting factoids in the Deloitte report:

Over 75,000 Deloitte professionals are on LinkedIn

The Deloitte Global Facebook page has 11,348 fans

The Deloitte Global Twitter feed has 2,169 followers

A typical Deloitte professional flew 14,220 kilometers in 2009
Over 5,300 jobs were posted on any given day in 2009 on Global career websites
2,322 average number of job applications received any given day
821 average number of student applications received any given day

Here are our observations and analysis on this report:

First, this report was quite late this year. Deloitte’s year ended May 31, 2009, which is a good 4.5 months ago. Deloitte reported much earlier in 2008, and was the first to report. Why the delay? Was it waiting for PwC results??
Second, while near flat growth in local currency terms and decline in US$ terms was expected, nonetheless performance was quite compelling, and Deloitte has zoomed up to near PwC level, missing leadership (intentionally or unintentionally) by 0.4%. This sets up an interesting rivalry for 2010, with both firms having good chance to establish leadership. PwC’s position for the first time ever, seems a bit shaky.
Third, emerging markets show strong growth despite tough economic conditions, validating their continuing good economic story and Deloitte’s ability to be part of that increase. Developing markets in Europe and Americas expectedly declined.
Fourth, we applaud Deloitte’s reporting of Social Media metric, the first Big Four firm to do so. By openly declaring that more than 75,000 of its professionals are on LinkedIn, this has effectively removed the stigma of placing your profile on the world’s largest professional network. You are not looking for another job when you are on LinkedIn, you are enhancing your network. Going public with this is commendable. We invite each and every of those 75,000 Deloitte professionals to join other Big Four professionals and alumni on our Big Four Firms Alumni and Professionals group to enhance their network. Deloitte has also a strong fan base on Facebook and a nice Twitter following. We give a hearty Thumbs Up to Deloitte for being open and proud of their social media presence.

In summary, though delayed, Deloitte put up some excellent numbers, stayed a smidgeon behind PwC in revenue, and took the leadership in social media reporting.

KPMG is the last to report in early November, and we will then offer our 2009 Big Four Financial Performance Analysis. See our 2008 Big Four firm analysis at http://bigfouralumni.blogspot.com/2009/01/big-four-firms-combined-revenues-top.html

What do you think of this? Look forward to comments both from Deloitte professionals, alumni and others.

Our Twitter Feed Ranked as Top Five for Accounting Jobs by Dow Jones WSJ

2009-10-24T12:22:00.000-04:00

We were recently, and unexpectedly, surprised by our ranking by the well respected FINS.com as one of the “The Top Five Twitter Feeds for Job Hunters in Accounting”. We are thankful to FINS for recognizing our Twitter and web efforts towards the Big Four firms alumni community.

This is what FINS said about us, and we quote verbatim, “2. @Big4Alum: This juicy feed is run by the alumni group behind Big4.com, a blog that caters to the interests of former employees of Accenture, Andersen, Bearing Point, Deloitte, Ernst & Young, CapGemini, KPMG and PricewaterhouseCoopers. Even for those who haven't had the privilege of working at one of these accounting giants, it's well worth reading. Particularly job seekers, who need to be up on the doings of the big boys. Tweets chronicle the latest job appointments, openings and other happenings, such as a discussion on CNBC on accounting's role in the financial crisis between Jim Turley, global chairman of Ernst & Young, and Bob Moritz, U.S. chairman of PricewaterhouseCoopers.”

Here is the link:

http://www.fins.com/Finance/Articles/SB125605830139196837/The-Top-Five-Twitter-Feeds-for-Job-Hunters-in-Accounting?Type=0&idx=10

The source of this ranking (Dow Jones / WSJ) indeed gives it the most validity. Here is what FINS is:

FINS is a new venture from Dow Jones, publisher of The Wall Street Journal. In other words, we know people who know people – particularly finance insiders, top recruiters and industry experts who have shared their secrets and inside information with us. We understand that it's about more than just a job; it's about your career. So we created FINS to help guide you through the finance job market and propel your career

All the jobs posted on our Twitter feed are real jobs that are posted by real recruiters. In other words, there are actual humans coming to our site and posting jobs which show up on Twitter. No bots. We encourage all our Twitter followers to apply to these jobs, or retweet them so other Big four alumni who are looking can benefit.

Asia Pacific Uber Rich Suffer A Lot In 2008, But Roar Back Quickly

2009-10-15T16:34:00.000-04:00

We have blogged earlier about the fascinating results of the 2008 Capgemini Merrill Lynch Global Wealth report, where high net worth individuals (HNWIs – net assets greater than US$1 million) and ultra-high net worth individuals (Ultra HNWIs – net assets greater than US$30 million), the uber-rich of the world, lost a cool $8 trillion of wealth from 2007 to 2008.

Recently, Capgemini released its 4th annual Asia Pacific report focused on this specific region. And this is interesting in the sense in that Asia Pacific is the new wealth creation hotspot of the world, and it appears millionaires and billionaires are being crafted here almost every week.

The findings in the Asia Pacific region are equally noteworthy. The ultra rich in the region were not immune from global collapse in markets and demand. Just from 2007 to 2008, the Asia Pacific population of HNWIs fell 14.2% to 2.4 million in 2008 and their combined wealth dropped a huge 22.3% to US$7.4 trillion. Correspondingly, the number of ultra-HNWIs fell 29.6% to 14,300 and their total wealth shrank 35.1%.

But all is not bad news in the region. While there has been serious declines in the past, the numbers of Asia Pacific’s HNWIs and their wealth is expected to increase as market conditions improve (at a robust annual rate of 8.8% till 2018), as the region roars back first out from the global slowdown.

China and India are likely to lead HNWI growth in Asia Pacific. Further, Capgemini makes a bold prediction: the Asia Pacific region is poised to surpass North America and Europe to have the highest levels of wealth in the world.

At this point in time however, Japan and China have a large (72%) percentage of the Asia Pacific HNWI population and 66% of its wealth, with both figures up from 2007.

In Japan, the number of HNWIs fell 9.9% from 2007 to 2008 to 1.37 million in 2008 and their wealth dropped 16.7% to US$3.2 trillion, a smaller drop than other markets.

In China, despite steep market capitalization losses, its HNWIs avoided the larger losses seen in other markets due to the closed nature of its markets and robust macroeconomic growth. The number of HNWIs in China fell 11.8% from 2007 to 2008 to 364,000 in 2008 and their combined wealth dropped 20.7% to US$1.7 trillion. But note this: China’s HNWI population now exceeds that of the United Kingdom to be the fourth-largest in the world.

In India, the HNWI population fell 31.6% from 2007 to 2008 to 84,000.

In Hong Kong, the HNWI population had the biggest percentage decline in the world, falling 61.3% to 37,000.

Being the conservative lot that they are, Asia Pacific HNWIs increased their allocations to safer and simpler investments in 2008 in a move to preserve wealth, increasing their cash positions to 29% from 25% in 2007. By the end of 2008, Asia Pacific HNWIs had 23% of their wealth in equities, down 3% from 2007. In Australia, HNWIs cut back their allocations to the asset class to 25% from 38%, while Hong Kong HNWIs scaled back their exposure to 21% from 33%.

Interestingly, the rich people in Asia Pacific put their money where they lived: investments in home-region and domestic markets rose to 67% from 53%, as global market uncertainty deterred Asia Pacific HNWIs from investing in other regions.

All this is interesting stuff. But it has key consequences for equity markets, GDP and wealth management. These uber rich are the world’s savviest investors and move capital to where it can earn the highest risk-adjusted returns. Further, they invest consistently in hard and intellectual assets to protect and preserve their wealth.

Capgemini’s findings that the Asia Pacific region will likely become home to the largest population of HNWIs is a key fact to pause and consider. Wealth is likely to be created at the fastest pace in Asia over the next ten years as emerging economies will surpass the developed world in assets, technology, standard of living and hungry customers. We may have to turn upside down the famous dictum to given to ambitious young professionals.

If you really want to be rich, then the new mantra for the 21st century may well be: Go East, Young Man!!

PwC FY 2009 Revenues Rise Modestly From FY 2008 Despite Tough Environment

2009-10-12T12:50:00.003-04:00

PricewaterhouseCoopers just released its FY 2009 global revenues for the year ending June 30, 2009, which came in at US$26.2 billion, a 7.1% decline from the US$28.2 billion in FY 2008 in US dollar terms. However, on local currency terms FY 2009 revenues were actually higher than FY 2008 by a modest 0.2%. These results were clearly impacted by two large macro factors. The global economic crisis put a sudden halt to the multi-year annual growth in revenues as clients withheld spending on professional services. The other impact was FX, as the appreciating dollar over the reporting period resulted in lower US dollars for each unit of local currency leading to a reduction in revenue on US dollar terms from FY 2008 to FY 2009.

In terms of service lines, Assurance grew 2.0% in local currency terms to US$13.1 billion, a remarkable achievement, since it was the only service line to do so. But in terms of US$, revenues actually fell by 4.8% (the press release says positive 4.8%, which seems to be an error). PwC attributed this to “market-leading strength of the business and its continued focus on improved customer service and very competitive pricing.”

Advisory services fell by 2.9% in local currency terms to US$6.1 billion, but fell a whopping 11.4% in US$ terms. This service line was the hardest hit by the global slowdown, as M&A and IPOs dried up and private equity firms took their foot off the pedals. Bankrupcty and restructuring work provided some offset.

Tax services fell by 0.3% in local currency terms to US$6.9 billion, but fell a 7.5% in US$ terms. Tax was impacted by the worldwide decline in corporate deals and restructuring work.

In terms of geographies, Asia revenues rose 5.4% to $2.7 billion in local currency terms and also rising 1.0% in US$ terms. Revenues in the smaller regions of Middle East & Africa, South & Central America and Australasia & Pacific also rose strongly in local currency terms, showing strong growth in emerging markets. In the developed world, revenues in both Europe and North America declined, and since these account for 80% of total PwC revenues, they essentially drove the results for the firm. Revenue growth was high in a number of PwC member firms around the world, with particularly good results in Japan, Russia, Spain, Sweden and Canada.

One bright spot was hiring, where, “….the PwC network also hired about 30,000 new people and increased its total workforce to more than 163,000 demonstrating a commitment to attracting the right people to serve clients around the world." Last year, PwC reported total workforce of 156,000, so the net increase of 7,000 staff would have meant a gross reduction of personnel of 26,000 leading to an around 15% attrition rate, composed of voluntary and involuntary departures.

"The past 12 months have been challenging for our network, with most PwC member firms facing tough economic conditions. While PwC's results for FY 2009 are not as good as we would have liked, they have held up well in the circumstances," said PwC Global Chairman Dennis M. Nally. "In addition the combination of first rate customer service and very competitive pricing has allowed us to increase our market share in many of our markets around the world.

PricewaterhouseCoopers is the second firm to report its FY 2009 results after Ernst & Young (Deloitte, the first to report in 2008 is conspicuously behind in reporting their performance this year), and the final numbers and commentary are not dissimilar to Ernst & Young.

On the positive side, achieving a small increase in local currency terms in what is probably the toughest financial environment in years is a remarkable success. This is evidence of PwC’s global breadth and depth and ability to continue to provide professional services to clients and fully earning each dollar from their clients. The US dollar’s appreciation does have a negative impact on year over year revenues, but this is clearly outside the firm’s control.

Growth in Assurance services and in emerging markets of Asia and Africa show that these regions continue to advance in both economic and financial terms and PwC’s ability to fully tap into this astounding growth. Fall off in developed economies were expected, but it is not as bad as it could have been, and certainly compared to other companies and firms around the world.

As expected, FY 2009 brings to a sudden halt the run of double-digit % growth in revenues that all the Big Four firms have enjoyed over the last five years. Next year, as the economies and capital markets rebound and the dollar depreciates, we would actually expect better financial performance in FY 2010.

Another big question we posed last year was Deloitte’s surprising push toward leadership of the Big Four firms. Last year, Deloitte posted revenues of US$27.4 billion, only $0.8 billion behind PricewaterhouseCoopers of $28.2 billion. This year, PwC’s revenues have fallen 7.1% to $26.2 billion. If Deloitte’s revenue fall only by 4%, its FY 2009 revenues could exceed $26.2 billion, making it the largest Big Four firm on the planet. It seems a tough task, though not impossible based on where the growth is coming from, we’ll just to wait for Deloitte’s results.

Deloitte Finds Business Tribalization Gathering Momemtum, Still Ways To Go

2009-10-09T13:57:00.004-04:00

Tribalization of Business?

Really??!! Are we going a few hundred years back in time?

It really appears so. Social media is here to stay and becoming more mainstream each day, and smart businesses better adjust to this new reality.

Market segments are now tribes. Channels are now networks. Advertising is now viral transmission. Early adopters are primal influencers. And so on.

Deloitte asks, “Why social software and communities matter to business?”, and answers:
Humans are hard-wired to cooperate and share opinions
Communities can have an “amplifier effect” on marketing, customer support and other corporate functions
The positive impact of effective communities can be game-changing

While much of this is common sense, the internet and social media sites have truly provided the modern world to interconnect in a way that has never been possible in human existence, so in a sense this is a new avenue for businesses to rethink strategies and reach customers in an increasingly flat world.

In their new 2009 Tribalization of Business Study, Deloitte shows that while progressing well, organizations have not yet fully tapped social media’s total potential

Here are the key findings of this research:

There is continued maturation of the enterprise’s use of communities and social media. People are now looking not only at the very visible number of active users and their level of participation, but also at non-active users or “lurkers” – people who observe the community, but don’t participate in the discussion. A full third are analyzing data on how these lurkers derive value from the community and a fifth have set up formal “ambassador” programs to attract lurkers. While these can be easily fixed by partnering and new management practices, only a few companies are taking the steps necessary to overcome these challenges.

While 58% evaluated partnering with existing communities, complementary vendors or end users when developing their community, 55% of the companies that evaluated a partnership did not actually partner. There appear to be significant gaps between community goals (such as generating word of mouth, customer loyalty and brand awareness) and how success is being measured.

There is a much longer flipbook, and here are some interesting findings that we were able to unearth:

Only 16% of the communities had more than 10,000 members
Only 26% of the communities were more than 1 to 3 years old
Only 45% will increase their investment in next 12 months as in the last 12 months
Only 32% are actively capturing data on “lurkers”
80% don’t have a formal ambassador program

Only 6% have more than 6 people managing their communities

36% say that the Marketing department manages their communities

34% say that the biggest obstacle is getting people to engage and communicate

37% say that number of active users is the best way to measure success

33% say that how often people comment is the best way to measure success

And Deloitte ends with the usual consultant-ese strategic conclusions:

To realize the full benefit of social media and online communities, it is imperative that business leaders move beyond viewing them as “bolt-ons” to their companies

Companies should consider integrating the new information flows associated with communities with those information flows that already exist within their companies

To be able to extract true business value from communities, new management strategies and practices will be critical, including redefining the scope and role of alliances as well as the overall boundaries of corporations

In simpler language - bring social media into the center of the company, connect the external environment to the internal environment, and rethink the way you can create value.

Social media is just getting started, and this study is a typical depiction of a large movement in its early stages - paradigms are being questioned, new business practices are being implemented, ROIs are getting examined, old ways of measurements continue and investments are minimal.

But as social media gathers momentum, both with individuals and eventually with businesses who serve those individuals, we should see some of these trends and percentages change with it. Meanwhile, Deloitte offers strategic consulting assistance for businesses who want to move faster on this path!

SEC’s Strategic Plan Seen to Support IFRS Transition and PCAOB

2009-10-09T11:32:00.001-04:00

The Securities and Exchange Commission just released its 2010-2015 Strategic Plan with some broad objectives to focus on securities compliance fostering and enforcement. The US SEC has been under considerable attack since it missed one of the world’s largest $60 billion Ponzi schemes operated by Bernard Madoff. Apparently, there were five particular instances over the years where the SEC could have caught Madoff had they pursued either their own processes or followed through on tips provided to them. Refocusing on enforcement is clearly goal number one.

In addition, the SEC has a key role to play in the oversight of the Financial Accounting and Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB), the SEC’s directions sets the tone for the activities of these two boards which will ultimately have a large impact on US accounting standards and regulations.

Here are their four strategic goals, which look quite on point and much needed for the institution to continue to perform its duty to investors and the American people:

Strategic Goal 1: Foster and enforce compliance with the federal securities laws

Strategic Goal 2: Establish an effective regulatory environment

Strategic Goal 3: Facilitate access to the information investors need to make informed investment decisions

Strategic Goal 4: Enhance the Commission’s performance through effective alignment and management of human, information, and financial capital

In particular, Strategic Goal 2 and outcome 1 have relevance to the Accounting profession and the Big4 firms. In overseeing both the FASB and the PCAOB, the SEC’s conduct has broad implications on accounting standards, disclosures, reporting, firm processes and overall audits.

Outcome 2.1: The SEC establishes and maintains a regulatory environment that promotes high-quality disclosure, financial reporting, and governance, and prevents abusive practices by registrants, financial intermediaries, and other market participants.

Promote high-quality accounting standards: The SEC will continue to promote the establishment of high-quality accounting standards by independent standard setters in order to meet the needs of investors.

For example:

• In overseeing the Financial Accounting Standards Board (FASB), the SEC will strengthen and support the FASB’s independence and maintain the focus of financial reporting on the needs of investors, consistent with the recommendations set forth by the SEC Advisory Committee on Improvements to Financial Reporting;

• The SEC will support FASB’s efforts to improve financial reporting, including recent standard-setting initiatives such as off-balance sheet accounting and accounting for financial instruments; and

• Due to the increasingly global nature of the capital markets, the agency will promote high-quality financial reporting worldwide through, among other things, support for a single set of high-quality global accounting standards and promotion of the ongoing convergence initiatives between the FASB and the International Accounting Standards Board.

Foster high-quality audits through the oversight of the accounting profession: The SEC will continue to oversee the PCAOB and its regulation of the accounting profession through the PCAOB’s inspection and disciplinary programs. The SEC also will work closely with the PCAOB on the promulgation and interpretation of auditing standards to address current issues in the capital markets.

The third point in the FASB says that the SEC supports the IFRS conversion, having recently put the timetable back on its front burner agenda, and agreed to reconsider the timeline and activities for the conversion of US GAAP to the international IFRS. Just today, James Turley said that this standardization was absolutely essential for US capital markets and investment analysis.

The point on PCAOB is also important, in that the SEC will and may need to refocus the PCAOB to “address current issues in the capital markets”, which brings in the need to adapt current circumstances it the global financial systems, where auditing of complex financial products will need to be better scrutinized by public accounting firms and their processes vetted with more rigor.

We believe that while this is only a small part of the SEC’s very broad and extremely crucial role in regulating US capital markets, their direction for accounting standards seems appropriate.

The SEC does welcome comments on its strategic plan and those of our readers who are more involved with how it impacts them can send thoughts to strategicplan@sec.gov

IPO Activity Rises in Q3-2009, China Leads in Numbers and Deal Value

2009-10-07T16:02:00.001-04:00

Ernst & Young just released its eagerly awaited Global IPO report, an analysis which is very topical today to validate the recovery seen in capital markets throughout the world. Results from this surveys in recent quarters have been quite glum, as companies and investors stayed away from initial public offerings. But this latest Q3-2009 report appears to have a much more positive spin, in line with other concurrent financial and Big4 surveys which indicate that things may finally be turning around towards better times.

The Q3-2009 IPO market was US$37.8 billion, the highest amount since Q2-2008 and a whopping 292% increase over the previous quarter of Q2-2009. The 149 IPOs were the highest quarterly total in 2009. But the more interesting fact this quarter relates to geography, with 7 of the top 10 largest IPOs being from Chinese companies, typically choosing the Shanghai or Hong Kong exchanges to list their stock. The largest IPO in the quarter and the year so far was China State Construction Engineering Corp, which listed in Shanghai in July 2009 at US$7.3billion.

Another statistic which proves the dominance of China on the world IPO market, 63% of the total IPO value ($23.8 billion) was for 62 Chinese companies, followed by US with total value of $3.2b or 8.4% of global capital raised and India with total value of $2.6b or 7.2% of global capital raised.

There was not much news from Europe, there were no IPOs in Germany and Italy, one each for France and Spain, and 2 in the UK. Total Europe value was US$189.2million or 0.5% of the Q3-2009 total. In Q3-2005, 31% of total listings came from Europe, and this shows the precipitous decline in IPO from the Continent, which is somewhat behind Asia and the US in recovering and spurring listings of private companies.

Ernst & Young expects Q4-2009 to be another strong quarter for the IPO market in Asia; the absence of a rapid rebound in Europe; and a cautious but substantive improvement in IPO sentiment in the US as risk appetite returns.

In another indicator of better health, the number of companies that have withdrawn their filings or postponed their IPOs, which rose 62%, to 120, last year, has also decreased.

Despite the flurry of recent IPOs from China to list on the Hong Kong markets, investors have been less than receptive to their debuts. Recent IPOs like Metallurgical Corporation of China Ltd., China Lilang Ltd. and China South City Holdings Ltd. Have all declined in price from their offer price, raising investors’ concern the market’s appetite for IPOs may be waning. This is completely different from the investor frenzied appetite for any IPOs prior to 2007, where even mediocre companies opened higher and climbed rapidly from their initial listing prices. Only the recent debut on October 6th 2009 of China Resources Cement Holdings Ltd. closed at its offer price, offsetting declines of as much as 17% by 5 other Hong Kong IPOs in September 2009.

Clearly quality has trumped quantity, showing that investors are savvy, demanding and quite tough with companies which do not meet their expectations, despite the paucity of new offerings. While E&Y only reports the IPOs which go to market, the survey doesn’t seem to look at post-IPO stock performance, which is equally a good indicator on the underlying health of these companies, and their survey would be much benefited by including such data to get a complete picture.

Nonetheless, that companies, underwriters and investment banks are even believing that IPOs are possible signals a key change in investor psychology, and recent success like Verisk, A123 and others signify that companies which provide good value will get the investor attention they deserve.

We will look at the Q4-2009 Global IPO report, which undoubtedly, will show that both the numbers and the deal value have increased strongly from previous quarters.

Accenture Q4-2009 In Line, But Sober Outlook Below Investor Expectations

2009-10-01T16:38:00.003-04:00

Accenture just reported its fourth quarter of 2009 and full year of 2009 results at 4 pm on October 1, 2009. We have summarized for you the highlights of these results:

Fourth Quarter 2009
Net revenues of $5.15 billion (versus $5.14 Wall Street expectations) a 14% decrease in U.S. dollars and 7% in local currency. EPS $0.39 plus $0.24 restructuring charge for operating EPS of $0.63 (versus $0.63 Wall Street expectations) compared with $0.67 in Q4-2008. New bookings were $5.54 billion. Operating income was $420 million, and operating margin was 8.2%. Absent the restructuring charge, operating income was $672 million and operating margin was 13.1%, the same level as 2008. Restructuring charge was $253 million. Free cash flow, defined as operating cash flow net of property and equipment additions, was $971 million, an increase of $27 million over Q4-2008. Accenture’s total cash balance at Aug. 31, 2009 was $4.54 billion, compared with $3.60 billion at Aug. 31, 2008 and $4.00 billion at May 31, 2009.

Full Year 2009
Net revenues of $21.58 billion (versus $21.58 Wall Street expectations), a 8% decrease in U.S. dollars and flat in local currency. EPS of $2.44 plus $0.24 impact from the restructuring charge for total of $2.68 (versus $2.68 Wall Street expectations) compared with $2.65 in fiscal 2008. New bookings were $23.90 billion. Operating income was $2.64 billion, and operating margin was 12.3%. Absent the restructuring charge, annual operating income was $2.90 billion and annual operating margin was 13.4%.

Net Revenues by Operating Group
Communications & High Tech: $4,831 million, compared with $5,450 million for fiscal 2008, a decrease of 11 percent in U.S. dollars and 4 percent in local currency.

Financial Services: $4,323 million, compared with $5,005 million for fiscal 2008, a decrease of 14 percent in U.S. dollars and 6 percent in local currency.

Products: $5,530 million, compared with $6,069 million for fiscal 2008, a decrease of 9 percent in U.S. dollars and 1 percent in local currency.

Public Service: $2,984 million, compared with $2,871 million for fiscal 2008, an increase of 4 percent in U.S. dollars and 11 percent in local currency.

Resources: $3,880 million, compared with $3,963 million for fiscal 2008, a decrease of 2 percent in U.S. dollars and an increase of 8 percent in local currency.

Net Revenues by Geographic Region
Americas: $9,403 million, compared with $9,726 million for fiscal 2008, a decrease of 3 percent in U.S. dollars and flat in local currency.

Europe, Middle East and Africa (EMEA): $9,904 million, compared with $11,546 million for fiscal 2008, a decrease of 14 percent in U.S. dollars and 2 percent in local currency.

Asia Pacific: $2,270 million, compared with $2,115 million for fiscal 2008, an increase of 7 percent in U.S. dollars and 12 percent in local currency.

Accenture set the annual cash dividend at $0.75 per share, an increase of $0.25 per share, or 50 percent, over its previous annual dividend, paid semi-annually rather than annually starting Q3-2010. The Board also approved $4.0 billion in additional share repurchase authority.

Outlook for Q1-2010 Net revenues in the range of $5.3 billion to $5.5 billion, which assumes a foreign-exchange impact of 0 percent compared with the first quarter of fiscal 2009.

Fiscal Year 2010 Net revenue growth to be in the range of negative 3% to positive 1% in local currency. Diluted EPS to be in the range of $2.64 to $2.72, with operating margin to be 13.4 percent. Operating cash flow to be $2.39 billion to $2.59 billion; property and equipment additions to be $290 million; and free cash flow to be in the range of $2.1 billion to $2.3 billion. The annual effective tax rate is expected to be in the range of 30 percent to 32 percent. New bookings in the range of $23 billion to $26 billion.

Clearly the appreciating US dollar this quarter against previous 2008 quarter had a lot to do with the large revenue decrease % in US dollar terms. Nonetheless, these fourth quarter results were in line with Wall Street expectations, with revenue being just a bit ahead of analyst consensus.

The outlook for 2010 fiscal year is more sobering. Company’s revenue range of $20.93 to $21.80 billion is less than current Wall Street expectations of $21.99 billion; and the company’s EPS range of $2.64 to $2.72 is below Wall Street current expectations of $2.77. And this is what appears to be driving the stock price lower now $35.61 or $1.66 or 5% below in after hours trading.

Accenture appears to have been fairly immune to the economic crisis in 2009, posting 2009 results that were slightly better than 2008. But this outlook says that 2010 will be flat to 2009, and the growth that being expected on both top and bottom lines is not going to be there. Accenture’s announcement of increased dividends and share repurchases is yet another sign that the company is returning capital to shareholders and signaling lack of investment opportunities.

Accenture is a strong company and its cash hoard of $4.5 billion is testimony to its strength. But can it really weather through this storm and produce growth? That is the key question that Wall Street will want to have answered, and likely to be a big topic in the conference call. The drop in stock price signals investors’ disappointment with the less than expected outlook for the future.

Ernst and Young UK Reports Excellent Results, Beating Rival Big Four Firms

2009-10-01T13:05:00.002-04:00

The Times of London just came out yesterday with Ernst & Young’s UK results (surprisingly, we couldn’t find it on the E&Y UK website).

And according to The Times, it appears that Ernst & Young UK has chalked out a different path than the other two Big4 firms which have already reported (Deloitte and PwC) and on which we have blogged earlier. 2009 revenues grew 8% from 2008 revenues to £1.4 billion. This is a stellar growth, compared to PricewaterhouseCoopers UK which grew 1% to £2.25 billion, and Deloitte UK which actually shrank 2% to £1.97 billion. Contrast this with the global E&Y firm, where revenues in local currency terms decreased by 0.2% but by a stark 7% drop in US$ terms. The E&Y UK firm is smallest of all the UK Big4 firms, and KPMG UK is still yet to report on its FY 2009 results.

E&Y’s Audit division revenues fell 2% to £360 million, but Tax division revenues increased by 6% to £392 million, and M&A Advisory revenues rose a stellar 15% to £289 million, while Other Advisory and Management Consulting was clearly the star of the show, with revenues up an amazing 16% to £342 million.

What led to this good performance? According to Scott Halliday, Ernst & Young’s managing partner for the UK and Ireland, it was due to the integration of the firm’s UK operations with those in Europe, Africa and the Middle East. In November 2008, E&Y merged more than 80 member firms across those regions into a single entity. “There is something fundamentally different about where Ernst & Young is relative to its competitors right now,” Mr Halliday said. “The market’s starting to recognise that and that’s why you’re seeing these results.”

Ernst & Young did not provide exact figures on profits available to partners, but said that it had declined from 2008 to 2009 “in line with our competition”. In 2008-09, PwC recorded profit per partner of £777,000, down 3% while Deloitte UK partners had average profits of £883,000 down 7.5 per cent.

Hiring at E&Y UK continues, with 700 new graduates and promotions of 48 junior accountants to partnership. This is in contrast to the overall E&Y firm where headcount was absolutely flat from 2008 to 2009.

Clearly, this is surprising and unexpectedly good performance at E&Y UK (and deserving our congratulations), the equivalent of beating analyst EPS estimates for other public companies. Expectations were a flat revenue growth in line with other Big4 UK firms and also in line with the overall E&Y firm, but these results show that there is something fundamentally different in E&Y UK and its response to difficult external conditions. It appears to have gained in M&A and advisory services, both growing strongly year on year, despite a rough market. Either E&Y is taking share from other Big4 firms or is providing a client proposition of such value that it is penetrating existing clients with additional services.

KPMG UK is the last firm to report (and we don’t see anything on their website today) and that will complete the picture. With today’s E&Y announcement, the bar has been set slightly higher for KPMG UK, and we’ll have to wait to see if they cross over or under that line.

Ernst & Young: External Challenges Drive Flat Revenue From FY 2008 To FY 2009

2009-09-30T11:37:00.002-04:00

Ernst & Young just reported its combined worldwide results for the year ending 30 June 2009 (FY09), the first Big4 firm to report its global results.

Combined global firm revenues of US$21.4 billion for the fiscal year ended 30 June 2009 (FY09) decreased a modest 0.2% in local currency terms from the comparable period in FY 2008. In FY 2008, E&Y reported US$23.0 billion in global revenues, and in US dollar terms, the revenue actually declined 6.8% from 2008 to 2009. This shows the dramatic effect of the appreciation of the US dollar in this period against foreign currencies. In other words, one unit of foreign currency translated to much fewer US dollars in the FY 2009 fiscal year compared to the FY 2008 fiscal year. We have highlighted growth in both local currency and US$ terms in our analysis.

Across E&Y’s five geographic areas, Japan grew at 7.5% in local terms, due to the acquisition of 1,000 professionals from accountancy firm Misuzu; and revenues increased 20% in US$ terms. Europe, Middle East, India and Africa (EMEIA) area grew 1.8% in local currency terms, but declined 9.7% in US$ terms. Oceania decreased 0.4% in local currency terms, but declined a dramatic 15.9% in US$ terms. The Far East decreased 2.7% in local currency terms and 5.9% in US$ terms. The Americas area decreased 3.2% in local currency terms but 5.5% in US$ terms.

There were some bright spots however, with many of the emerging markets achieving strong growth, including the Middle East (18.6%), India (13.1%) and Brazil (8.0%).

E&Y said that, “all of our service lines were impacted by pricing pressure and fee reductions.” Despite that, Assurance Services with FY 2009 revenues of $10.1 billion offset price pressure with market-share gains, and revenues declined only 0.7% in local currency terms, but 6.3% in US$ terms. Global Tax Services with FY 2009 revenues of $5.8 billion was up 1.8% in local currency terms due to increased tax enforcement, but dropped 5.2% in US$ terms. Advisory Services with FY 2009 revenues of $3.6 billion was up 1.5% in local currency terms due to sustained demand for risk management and performance improvement, but dropped 6.0% in US$ terms. Transaction Advisory Services with FY 2009 revenues of $1.9 billion, had a 6.9% decrease in local currency terms due to fall in M&A volumes, but revenues decreased a whopping 14.8% in US$ terms.

Ernst & Young’s employee levels were flat from 2008 into 2009 at 144,500 total employees. Americas declined 4.5% from year to year, this was offset with growth in Japan, EMEIA and Far East. Employee level changes across service lines was moderate in percentage terms from year to year. Attrition levels would be certainly down due to the tough job market, and it seems hiring levels just kept pace with departures.

The recently reported numbers from Deloitte UK and PricewaterhouseCoopers UK were pre-indicators that the Big4 firms would not be reporting blow-out results. And this first announcement from E&Y confirms our premise that business for the Big4 has slowed down dramatically in the last 15 months as the economic global crisis finally had an impact on the Big4 firms due to reduced demand, price pressure and fee reductions. This brings an abrupt stop to 5 year of double-digit % annual revenue growth at all the Big4 firms.

The good news in this release is that revenues have not shrunk by a large amount, showing that the Big4 firms have deep breadth and penetration in every market and country in the world, and their services continue to be in demand by clients as they navigate through this crisis. A flat year to year scenario, given the deepest and most detrimental recession since the Great Depression, is cause for somber reflection, but not for alarm. Consider that Tax and Advisory Services actually grew for Ernst and Young.

We’ll wait to see how the other Big4 firms report results, Deloitte is certainly late this year in their results, but we would expect that revenue growth is nearly flat and all firms will discuss external challenges as the main driver of this situation.

Police Raid Ernst & Young HK Office in Akai Case

2009-09-29T21:26:00.000-04:00

We highlight a breaking news story happening on the other side of the world, in Hong Kong the police yesterday raided the offices of Ernst & Young, the erstwhile auditors of Akai. Akai was the largest corporate collapse in Hong Kong, with similarities to the Enron case in the United States. This story is making current headlines in the small city state, making the first page of the influential South China Morning Post and also reported on Bloomberg Asia and Bloomberg.com’s home page today.

Bloomberg further reports that, “The Commercial Crime Bureau today conducted an investigation into a case of suspected ‘forgery’ involving an auditing firm in Hong Kong,” police spokesman T.K. Ng said in a statement yesterday. The police apparently arrested a 41 year man at his house, but the identity of that person or his firm affiliation is not known.

Earlier this week, Ernst & Young, settled with Akai’s liquidator, Borrelli Walsh Ltd and agreed to pay an undisclosed but “substantial” amount to settle claims against the firm of negligence in performing its audit of Akai between 1997 and 1999. Also, on September 23, 2009, the E&Y HK firm suspended one of its partners, Edmund Dang, after pursuing an internal investigation.

The Hong Kong Institute of Certified Public Accountants will reportedly monitor police investigations into Ernst & Young, Winnie Cheung, chief executive of the accounting regulator, said by phone yesterday. The institute, which doesn’t have its own investigative powers, may fine or ban any offenders if the police probe reveals any wrongdoing, she said.

This is a complex story with some unfamiliar names, let’s help by sorting out the players and the actions (keep in mind, this is based on our web research and presented only to clarify the situation for our readers):

Who is Akai?

Akai was a originally a Japanese consumer electronics maker, which went bankrupt in 2000 ending up owing creditors about $1.11 billion. Reportedly, at its peak the company employed 100,000 workers and had annual sales of HK$40 billion ($5.2 billion) with well-known brands including the Singer Sewing Machine Co. of the U.S.

This is Akai’s website - http://www.akai.com/index.asp. Akai in Japanese is the red color.

Who is Borelli Walsh?

Borrelli Walsh is the liquidator for Akai, it is a Hong Kong based specialist restructuring, insolvency and forensic accounting firm, and focuses on Financial and Operational Restructuring, Corporate Recovery and Insolvency, Financial Investigations and Forensic Accounting, Construction Claims Advisory and Recovery, Corporate and Strategic Advice and Information Technology Services

What is Ernst & Young’s role in this case?
Ernst & Young were Akai’s auditors in 1994, all the way to bankruptcy in 2001.

Why is Ernst & Young getting sued?

Ernst & Young was originally getting sued for audit negligence by the liquidator, but Borrelli Walsh appears to have received some recent and rather incriminating evidence of audit fraud. On September 16, 2009, at the opening of the trail against Ernst and Young, Borrelli Walsh alleged that files dating back to 1994 were altered later to give the “semblance of an audit trail.” Borrelli Walsh said audit documents 1994 contained handwriting from an auditor who was not employed by Ernst & Young until 1998. Kosmin also said electronic versions of some documents had been altered with the addition of information years after the documents had been dated.

Of course, Ernst & Young denied this allegation at Hong Kong’s High Court, but later launched an internal investigation, where it expressed that it was “dismayed.” “This investigation has made clear that certain documents produced for the audits in 1998 and 1999 could no longer be relied on due to the action of the audit manager in early 2000,” Ernst & Young said in an e-mailed statement.

Borrelli Walsh was reportedly seeking hundreds of millions of dollars from damages from E&Y.

What was the settlement?
Ernst & Young reportedly settled with Borrelli Walsh to close these claims for an undisclosed but substantial sum of money without admitting guilt. Borrelli Walsh welcomed this settlement, indicating that it would avoid needless legal costs.

Who is The Grande Holdings?
In 2004, The Grande Holdings bought out Akai and brought it out of bankruptcy. The Grande Holdings has other well known brands like Sansui, Akai, Nakamichi and Emerson, and makes high class audio, video and household goods. The website is http://www.grandeholdings.com/english/links.php but it is really sparse in terms of providing any substantive information.

Who is Christopher Ho?
Christopher Ho is the Chairman of Grande Holdings and a former Ernst & Young partner. Hong Kong’s Court of Appeal on Sept. 24 upheld an earlier judgment ordering Ho not to dispose assets of as much as $200 million. Grande said yesterday the Hong Kong courts have also placed restrictions on certain asset sales.

This has the makings of a classic soap opera with twists and turns, new ground breaking evidence, multiple players, allegations and counter allegations and now with the involvement of the police, taking on somewhat of a sinister turn.

Needless to say, this is a messy situation for Ernst and Young, an audit that is more than eight years old suddenly coming to the front burner and creating unnecessary bad press. This is evidence of the long tail of public company audits, and shows just like the Parmalat case with Deloitte, that there is considerable risk in auditing, and audits gone wrong can have bad consequences many years into the future.

We cannot make judgment calls on who was right in this case, but clearly there was something amiss in the audit, and the settlement and subsequent police raid indicate that there is more than just a bad audit. We hope that things do sort out satisfactorily for all parties, and those not even remotely connected with the audit are not held to blame for it, as happened with Andersen.

The recent development in the UK, which rejected caps on auditor liability only adds fuel to this fire, and exposes auditors to potentially limitless and time-unbound liabilities of any audit, which only shows the need for immaculate and tight risk control at every audit step.

We’ll follow this story and by the looks of it, there’s certainly more to come. If any of our readers have more information on this, please do comment.

KPMG: Tax Authorities, Looking For Cash, May Push Transfer Pricing To Front Burner

2009-09-22T13:34:00.001-04:00

Transfer Pricing (TP), or the setting of intercompany prices of goods and services transported across country borders by the same company is typically an esoteric tax issue which garners little attention under normal conditions. But as KPMG recently points out in its recently released Global Transfer Pricing Review, the tough economic environment is leading many governments to seek out new sources of tax by extending and tightening controls over cross-border transactions between companies within the same group.

And this topic is quickly getting to the front burner for many multinational corporations.

In the most simple terms, KPMG explains, “Transfer pricing reviews typically focus on comparing transactions between companies in the same organization, with similar transactions between unrelated companies – so called “arm’s-length” transactions. Some authorities may levy taxes and impose penalties on companies where their internal pricing is found to deviate from arm’s length pricing.”

The tool the tax authorities most often use to examine whether pricing is correctly set as per arms-length requirements is the much-dreaded audit. This usually requires intense effort on the part of the multinational to prove they have complied with or in compliance with transfer pricing regulations. The absence of such proof is a nasty fine and potential penalties, all of which companies go to great lengths to avoid.

Multinational companies which are entering new emerging markets such as China, Greece and Vietnam now have to deal with new or greatly expanded TP regimes, while developed countries are stepping up their audit programs and tightening their rules.

There appears to be different approaches taken by tax authorities all over the world to deal with this issue:

In the US, tax authorities are placing advance pricing agreements, which are made between taxpayers and revenue authorities on prices and taxes payable to each transaction. In Canada, there appears to be a movement towards a “taxation by negotiation” approach.

In Europe, there is a flood of new regulations from larger countries, coupled with new TP regulations from Eastern European states. Obviously this impacts companies who are setting shop in these lower-cost countries. In the UK, there is a new risk-based approach to TP enquiries, targeting high-risk transactions and structures.

However, it is in the Asia Pacific region where authorities are most active, and stepping up audit activity, especially in India, Australia, China, Korea, Japan, China and Singapore, showing that Asia is now the new hot spot for TP compliance and activity. Not surprisingly, Asia Pacific tax authorities are seen by many as the toughest in the world in this field.

The 150 plus page KPMG survey is a detailed look at TP regulations in 60 countries, and covers such topics as competent authority documentation requirements, methodologies used, penalties imposed, and recent developments. There are two pages for each country and the book is a splendid guide to understanding the breadth and depth of this complex topic. Each country is different, has varying considerations, and places varied regulations and penalties, making TP professionals a globally savvy bunch to fully understand all these regulations in all these different countries.

However, there is a bottom line to all this. Multinational companies will be subject to more intense scrutiny on their intercompany pricing in the upcoming future, and they had better understand and adhere to global TP regulations as they expand into new markets and also deal with a complex web of goods and services which are continually moving within their company but across geographic borders.

So, it is likely that TP will soon impact finance, accounting, tax, shipping, distribution and pricing personnel much more than it has ever done in the past. As KPMG says,
“With the profits of many multinational enterprises shrinking, tax authorities can be expected to ratchet up their audit activities to ensure that each of their jurisdictions gets its fair share of a shrinking pool of tax revenues.”

The entire report is available at, and a worth read for tax personnel:

http://www.kpmg.com/SiteCollectionDocuments/2009-Transfer-Pricing-Guide-GTPS-Review.pdf

Deloitte Predicts Flat 2009 US Holiday Retail Sales, And A Lonely Mall Santa

2009-09-21T20:21:00.001-04:00

Though there are many signs of economic rebound as we have seen from many recent Big4 firm surveys which are indicating consumer confidence, business recovery and overall growth. But there are equally troublesome spots which are looming on the horizon which say that the recovery is not going to be robust or as smart as everyone would like it to be.
Here’s a somewhat somber forecast from Deloitte on 2009 US holiday sales which is getting a lot of media play.

Deloitte says that retailers should expect sales to remain flat against 2008. That’s right. Flat. No growth. No upswing. No crowded aisles. No long lines. But not down as it was last year almost 2.5%. And that’s the good news.

What’s the issue here? It’s the consumer. He/she has restricted availability of credit, is reeling from high unemployment, is dealing with foreclosures, paying down debt through savings and generally not in a mood to spend this Christmas.

And what can change this negative outlook. If the stockmarket rally continues, if housing prices pickup, if gas prices and general inflation stay flat, if the job market starts to canter and if the dollar strengthens, this could help boost confidence at a crucial time for retail, the period between Thanksgiving and Christmas accounting for nearly 70% of all the year’s retail sales.

Deloitte’s Retail group expects total 2009 holiday sales to be US$810 billion, flat over 2008 (excluding motor vehicles and gasoline), however this is better than 2008, which fell 2.4% below 2007, and marking the first decline in holiday sales according to Deloitte’s analysis of Commerce Department data dating back to 1967.

What ar retailers to do to best manage this tough situation? According to Stacy Janiak, vice chairman and U.S. Retail leader, Deloitte LLP, “Retailers appear to have prepared themselves for a challenging season by adjusting inventory and closely managing their expenses. Going forward, scenario planning that accounts for different market conditions may help merchants navigate these uncertain times. Retailers should also consider placing customer insights at the forefront of their decisions around merchandising, pricing and promotions. Retailers that can harness the power of technology likely have a better chance of engaging those consumers who are willing to spend. The proliferation of mobile applications and social networks may yield new opportunities to pursue targeted advertising, build brand loyalty and measure campaign effectiveness.”

Again, this is only a prediction of what’s very likely to occur. Come early next year, when all the numbers are in for the holiday season, we will know for sure. But it does seem tough for the brick and mortar stores, e-tailers like Amazon may yet buck this trend and verify again the continuing trend toward buying stuff on the internet is here to stay.